What happens if your mutual fund or bank nominee passes away before you? Here’s what you should do next
When you invest in a mutual fund, buy insurance, or open a bank account, picking a nominee is one of the first things you are asked to do. But one situation that many investors don’t think about until it happens is when the person they nominated passes away before them.
If your nominee dies before you, your investments do not automatically become invalid or get transferred to someone else. However, you must ensure that you appoint a new nominee to keep things simple for your legal heirs.
Whether it is your MF investments, demat account, bank deposits or insurance policy, the death of a nominee does not change its ownership. You continue to have rights over your assets, including buying, selling or redeeming them.
Why you must update your nominee?
Failing to update your nomination after your nominee passes away can create unnecessary delays and paperwork for your legal heirs.
If an investor passes away before appointing a new nominee, the financial institution will no longer have a valid nominee on record to transfer the assets to. Instead, the investor’s legal heirs may have to submit additional documents such as succession certain, legal heir certificate, probate of a will or other documents, depending on the type and value of the investment.
However, the transmission process for securities is expected to become easier soon. The Securities and Exchange Board of India (SEBI) introduced a new framework to simplify the transfer of securities from the account of a deceased holder to a joint holder, nominee, or legal heir.
At the market regulator’s board meeting on June 19, it unveiled a new category called Quick Transmission Processing (QTP) for small-value claims, helping beneficiaries gain access to inherited securities without much hassle.
The markets regulator has approved the reforms, though the implementation date has not been announced yet. The regulator is expected to issue a detailed circular soon, which will outline the operational framework and timeline for the new rules to take effect.
How to update your nomination?
Most banks, mutual fund houses and depository participants allow investors to make changes in their nominations through online or offline requests. It’s prudent to update the nominee details as soon as possible.
It usually takes only a few minutes to finish the process but doing so can save your family significant time, paperwork and legal formalities later. You must also review your nominations after major life events such as marriage, divorce, the birth of a child among others to ensure they continue to reflect your wishes.
Update nominations across all your investments
Updating the nominee for one financial product does not automatically update it for your others. Banks, mutual funds, demat accounts, fixed deposits, insurance policies and other investments typically maintain separate nomination records.
This means you will need to review and update each one individually to ensure your records are consistent and your loved ones don’t face avoidable complications later when they seek to claim your assets.
